LCCN session: carbon allowances and trading

The Low Carbon Communities conference was split into various different sessions, with a choice about what to attend. I’m interested in carbon allowances and carbon trading, so my first session was the one entitled Community energy, carbon allowances and the EU Emissions Trading System (EU ETS). Unsnappy title, but a very interesting discussion.

Baroness Worthington is founder of Sandbag, a non-profit organisation designed to raise awareness of emissions trading. She gave the group some interesting insights into ETS.

A bit of background: the European Trading System (ETS) was launched in 2005 with the aim of combating climate change. The idea behind it is fairly simple: member states agree on national emissions caps; the EU Commission approves these; then operators are assigned certain allowances based on their “fair share” of emissions. These allowances are then traded so that parties needing to emit more can buy the surplus from parties who haven’t emitted as much as they were allocated. The total emissions cap reduces over time as we move towards a low-carbon future.

Of course, the reality is neither as simple nor as effective as that description suggests. The cap may be reducing, but it’s by a “measly” 1.74% a year. To put that in context, Eurozone emissions reduced by 11% anyway just as a result of the recession. In other words, the cap is set too high to effectively encourage ways of reducing carbon emissions.

Baroness Worthington described the European Commission as a “black box”: its opaque internal workings make it hard to lobby for effective change. She said that we badly need “an informed public to back [campaigners] up at key decision points”.

Sandbag buys allowances and “rips them up” – that is, it takes allowances out of the system and permanently retires them so that the carbon can’t be emitted by anybody else. (Rather unsatisfyingly, it doesn’t physically rip anything up because it’s all electronic.)

People in the group asked some interesting questions:

If emissions reduced by 11% because of the recession but the cap only reduced by 1.74% a year, doesn’t that mean there’s currently a surplus of carbon allowances floating around?

Answer: yes, there is a surplus, and this is yet more proof that the current cap is much too high. We need to lobby to reduce it.

Say you have £10,000 to spend. If you spend it on buying allowances and retiring them, you’ll take a lot more carbon out of the system than you would if you spent the same money on, say, new solar panels. So shouldn’t we focus on purchasing and retiring allowances?

Answer: that’s true, but spending the money on the solar panels represents an investment in green energy that you won’t get from ripping up allowances.

One carbon credit currently costs around six Euros, which green campaigners believe is much too low to encourage lower-emitting behaviour. Someone in the group suggested starting a community drive to buy these credits, asking local people to buy them and then pooling them to make a grand gesture of retiring them. Someone else wondered if it could be represented on a large piece of paper like a charity cheque!

Can’t Ecotricity or Good Energy retire allowances? Do they do this already?

Ecotricity and Good Energy are suppliers, not generators, of energy. So they can’t retire ETS allowances because they don’t get them. (They do retire ROCs but that’s different.)

The session ran out of time while we were still discussing this complex topic, but everybody present seemed to agree that the current set-up is wrong. On paper, the most value-for-money carbon-saving action is to buy credits to stop others using them, instead of actually investing in a greener future. That’s surely a sign that the system needs reforming.